Tuesday, January 31, 2012

Many writers have outlined the critical success factors for product companies, like sell every unit at a profit, patent the design, and continuous product improvement. But recently I was asked about success factors for services startups, and I quickly realized that there is very little published to help the thousands of startups that fall in this category.

The distinction between product companies and services companies is easy to see. Products are tangible and can be consumed now or later, while services are intangible and have no shelf life. A product business can usually be scaled with minimal people, which can lead to enormous profits and “making money while you sleep.” Scaling services means cloning yourself.

Obviously we can find many critical success factors, like finding and retaining high-value customers, which apply to companies that are product centric or services centric. Here are a few which I believe are at least most relevant and important to the services arena:

Do what you know and what you love. If your business offers a service, like marketing or management consulting, you are the product. If you or any of your partners really don’t have the credentials, the commitment or the interest, you won’t succeed. Customers don’t like people who don’t show their passion and love for the job.

Make sure your service is innovative. Being the low-cost commodity level service provider is not a recipe for success. It’s hard to make up for a low margin by increasing your volume of work. You need to demonstrate innovative approaches, more knowledge, more productivity and superior results to get the references you need.

Networking and relationships. No expert or consultant can know everything they need to know. That’s why it is just as important that you can fill in the gaps by having the right relationship with people to back you up. Networking is the way to stay current yourself and nurture those relationships.

Clearly communicate the vision, mission, and values. It’s hard to “touch and feel” services ahead of time, to see if you are buying what you expected. Thus it’s up to you to communicate effectively what you are about, to customers as well as your own team.

Attract and retain the highly skilled and motivated people. Services people need to hit the ground running. Customers don’t like to see you learning on the job or outsourcing. Every partner and employee can kill your success potential in a heartbeat, so don’t take shortcuts on your hiring and training practices.

Define and document the service process you sell. You can’t measure, scale, or patent a service process that is not clearly documented. Even if your service is artisan based, like commercial photography or interior design, the principles, vision, and style need to be clearly communicated to your team as well as your customers.

Create and maintain the highest level of customer satisfaction. Customer satisfaction is very important for all companies, but it is everything for a services company. You don’t have tangible product items which can be compared for quality and cost in the value proposition.

In reality, every company has a services business component, if nothing more than customer service. Thus these are the critical success factors that apply to every company, rather than the ones you typically see for product companies. In addition, the statistics show that over half of new startups, perhaps as high as 75%, provide services only (no product).

Another reality is that angel investors and venture capital groups almost never invest in a services-only company. Their perspective is that these entrepreneurs need only to sell themselves, but shouldn’t need capital up front for product development or manufacturing.

That’s another reason that your services business is all about you, and what you bring to the table for skills, resources, and customers. In essence, you are the ultimate critical success factor for your business. Make it happen.

5 comments:

good points. I would also like to add that if you can package your services as a product it is easier to scale. To take it one step further, it is also possible to sell knowledge as a product. Although not a mainstream concept yet, it is another way to scale your service business and offer your knowledge separate from actually delivering your time in person to your customer.

This is perfect -- we're a small service business with large-scale national competitors, but what they have in marketing we have in word of mouth and great customer service. And I agree with Mr. Foster -- packaging services together is a great way to scale and show value.